Vodafone, Western Union Offer Transfers Via Cell

Monday, December 8, 2008

By AMOL SHARMA

Vodafone Group PLC plans to announce a partnership Monday with Western Union Co. to allow international money transfers via mobile phones, as the wireless carrier seeks to tap into the increasing flow of cross-border remittances.

The companies are initially launching a pilot program that will allow residents of Reading in the United Kingdom to send money to family members and friends in Kenya, where Vodafone is the 40% owner of local wireless operator Safaricom Ltd. If that program is successful, the companies will expand it to other countries.

There is growing interest in using cellphones as a conduit for money transfers, with financial institutions such as Citigroup Inc. and Visa Inc. taking steps into the business, along with Silicon Valley start-up Obopay Inc. Wireless carriers in the U.S. and in emerging markets such as India and the Philippines are having some success with programs that let users transfer money domestically via cellphones.

Now U.K.-based Vodafone and other wireless operators have set their sights on cross-border remittances. Research firm Aite Group expects that by 2010 global workers’ remittances will amount to $465 billion, up from $369 billion last year. To be sure, the World Bank said in a recent report that growth in international money transfers has begun to moderate in the past few months as a result of the global financial crisis.

Remittances are a big contributor to gross domestic product in many emerging markets as workers migrate around the globe, maintaining ties to family in their native countries. Most of these transfers are in the range of $300 to $350 and happen a few times a month, but Vodafone wants to encourage much smaller and more frequent money transfers via cellphone.

Vodafone, which owns or has stakes in wireless operators in Africa, the Middle East and India, sees mobile money transfers as an attractive add-on service in markets where users generally just buy prepaid phone minutes. “It’s got the backing of the company to take into our emerging-market footprint,” said Nick Hughes, Vodafone’s head of international mobile payments.

The telecom company’s international remittance service builds on its domestic money-transfer business, which it started in Kenya last year and has since expanded to Tanzania and Afghanistan. That service, known as M-Pesa (“cash” in Swahili), has signed up more than four million customers — often urban workers who use it to ship money to relatives in rural areas. Senders can visit any of 4,000 locations, including Safaricom retail outlets and gas stations, to hand over cash that gets deposited into their phone accounts, and then send it via text message. Recipients go to another M-Pesa location to pick up the cash.

Expanding the service to allow cross-border transfers through Western Union agents allows Vodafone to not only increase the volume of cash it is handling, but also move into a higher-margin business: It charges only 18 U.S. cents for domestic money transfers in Kenya, but the charge for international remittances from the U.K. will be ?4.90 ($7.22) for as much as ?100, and ?6.90 for larger amounts.

Western Union, which processed $64 billion in cross-border remittances last year and has 365,000 agent locations in 200 countries, is hoping to expand its reach through cellphones. “Mobile financial services have tremendous potential in places where people don’t have other choices,” said Matt Dill, head of digital ventures for the company. He said Kenya has relatively few workers with bank accounts, yet 10 million cellphone users. Western Union only has 400 agent locations in Kenya, mostly in urban areas.

Mr. Dill said Western Union is partnering with other carriers for international money transfers, including Globe Telecom Inc. and Smart Communications Inc. in the Philippines, Cairo-based Orascom Telecom Holding S.A.E, and Bharti Airtel Ltd. of India.